Nonprofit Bookkeeping & Accounting For Dummies, 2nd Edition

Chapter 20

Organizing the Statement of Functional Expense

IN THIS CHAPTER

Allocating expenses by function and nature

Analyzing spending and efficiency

Your statement of functional expense reports expenses by their function and nature. First, expenses are classified by their function, which includes program costs, management and general expenses, and fundraising expenses. Next, expenses are separated into their “natural” classification, such as salaries, rent, utilities, supplies, and depreciation.

All nonprofits must report expenses by nature and function in one of three ways:

• In the notes to the financial statements
• In the statement of activities
• In the statement of functional expense, the topic of this chapter

Nonprofits that have more than one function usually opt for the statement of functional expense.

Prior to 2017, only voluntary health and welfare group organizations were required to include a statement of functional expense. However, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-14, which requires all nonprofits to report the functional and natural relationship between expense categories for fiscal years beginning after December 15, 2017.

This chapter looks at how expenses are divided by function and nature and how to ...